Author Topic: Questioning borrowers  (Read 5842 times)

DutchNurse

  • Jr. Member
  • **
  • Posts: 55
    • View Profile
    • Email
Questioning borrowers
« on: September 11, 2013, 01:53:31 PM »
Lets talk a little about inquiries to our borrowers.

On the browse notes page, when you click to expand loan details there are a number of pre-written questions you can pose to your borrower. I've looked over maybe 500-600 loans at this point in my 'career' here, so, I'm assuredly still a noobie and haven't seen probably a large enough sample size to comment...

But, at least from what I've seen, there are very few borrowers that are even questioned by us lenders. I sort of follow a mantra of education/information offsets risk and I just can't believe that I've seen a borrower questioned about three times in over 500 loans I've browsed through

"What are your monthly expenses related to housing (rent, mortgage(s), home equity loan and / or line of credit, utilities, insurance, taxes, etc)?"

"If you are paying a mortgage, please break down all monthly housing related expenses (mortgage payment, insurance, taxes, etc)."

"What are your current debt balances, interest rates, and monthly payments by type (credit cards, student loans, mortgages, lines of credit, etc)?"

These are some of the questions (if not all of them) I'm interested in knowing.

Is it a time constraint? Most of us dont have time to ask when investing over hundreds of notes?

Much more likely, if you ask questions, is is that your probably likely to lose the note to other investors when waiting for a response? I'm guessing this is the reason there are so few questions asked?


Joleran

  • Full Member
  • ***
  • Posts: 151
    • View Profile
Re: Questioning borrowers
« Reply #1 on: September 11, 2013, 02:03:39 PM »
These days the most desirable loans fund in seconds to minutes, and there's no time to ask questions, let alone wait for an answer.  I'd almost look at any (recently issued) loan that had answered questions with extreme suspicion due to it needing to have sat around for the questions to have been answered.

cfb

  • Full Member
  • ***
  • Posts: 132
    • View Profile
Re: Questioning borrowers
« Reply #2 on: September 11, 2013, 03:55:25 PM »
Yep, no chance to ask borrowers anything; the note is long gone before they'd answer if it was any good.

I found that if a note looked squirrely enough for me to want to ask a question, it was best left for someone else.  In the days when I could ask questions, the answers split one of two ways.  Either the answer made me not want to invest, or it didn't answer the question.  I had no end of people with 5k in revolving debt that wanted $35k and when asked "what do you plan to do with the money" or "how will you apportion the funds" would reply "To pay off all my debt".  Gee...thanks.

I think that at this point, any educated borrower knows to say nothing, use a vanilla title for the loan, and hold off answering questions until the loan funds, because then you won't have to.

What would be nice is if you could ask questions and invest and if on the basis of the answers you changed your mind, you could back out of the purchase before it fills.  Leave a queue of interested buyers who might take your place or relist it.  I had several notes that looked great, I invested, someone else asked a question and the answer basically violated the terms of the loan, showed fraud or otherwise made you reconsider.  For example, one guy with incredibly great looking stats (750 credit, made lots of money, not too deep in debt, no payment issues) replied to a question 4 days after I bought the note admitting that he was taking the loan out and giving it to someone else that didn't qualify for any loans and they were going to pay him back.  Then he paid for a while and declared bankruptcy.  Probably because despite his good looking credit, he was a moron with money.

Or as an alternative to backing out, float the loans for a week in a pre-buy situation, let lenders ask questions, require the borrower to answer them before listing, and then place the note up for sale.  Or have them fill in an actual description for every loan and pre-answer all the canned questions so there would be no doubt.  If someone doesn't want to type a few sentences to describe the loan and answer a few questions, they don't really want it that badly.

PennySaved

  • Full Member
  • ***
  • Posts: 139
    • View Profile
Re: Questioning borrowers
« Reply #3 on: September 11, 2013, 04:10:15 PM »
Back in the early years of the P2P lending, I would ask questions sometimes and get answers.  Sometimes the answers would be satisfactory, sometimes not.  I remember looking back at the listing for one of my charged off loans and seeing a QA that I did not remember in which the borrower explained he need the money to pay his rent or pay off a payday loan-  obviously a red flag for prospective lender.  But I had probably already invested in the loan before that answer was given.   Now loans are funded so fast there is no time for the QAs.

Fred

  • Hero Member
  • *****
  • Posts: 1421
    • View Profile
Re: Questioning borrowers
« Reply #4 on: September 11, 2013, 06:13:47 PM »
LC rejects 90 percent of applicants; so I usually let LC do all the questioning.

dontvote

  • Full Member
  • ***
  • Posts: 226
    • View Profile
    • Email
Re: Questioning borrowers
« Reply #5 on: September 11, 2013, 06:35:10 PM »
LC rejects 90 percent of applicants; so I usually let LC do all the questioning.

Can you tell us where you got the 90% number?

I wonder if letting in an additional 10% would significantly degrade default levels. I'll bet it wouldn't.
dontvote

Interest Radar IRR: 46.11%
NSR ROI: 41.22%
Average Loan Age: Your Moms

Fred

  • Hero Member
  • *****
  • Posts: 1421
    • View Profile
Re: Questioning borrowers
« Reply #6 on: September 11, 2013, 06:41:36 PM »

cfb

  • Full Member
  • ***
  • Posts: 132
    • View Profile
Re: Questioning borrowers
« Reply #7 on: September 11, 2013, 08:54:07 PM »
Given that I've seen loans lately that talk about paying off payday loans, have recent major derogs and multiple pages, along with low income...I wish they'd ask more questions.  I know they're skimming the cream of the crop, but I'm not sure which crop it is.  Anyone know what the demographic for lc borrowers is? 

DutchNurse

  • Jr. Member
  • **
  • Posts: 55
    • View Profile
    • Email
Re: Questioning borrowers
« Reply #8 on: September 11, 2013, 08:58:47 PM »
Interesting replies by all.

I guess I'd just love to see this operation as an open book transparency wise. Makes me wonder what doesn't make the cut.

Also interesting is the borrower response, "I'm giving it to somebody else" that CLEARLY invalidates the loan, I wonder, did lending club catch that and throw the loan back to the investors before it got off the cliff.

I suspected it was because the C, D, E etc yielding loans were snatched up so quick that people didn't have time to play 20 questions, but I was thinking exactly the same as CFB when he said it'd be nice if we could back out of the loan after then answer as some point. In effect, reserving your spot initially, asking and being able to travel back to the sidelines if its clear this is some imbecile looking for a quick way to burn cash.
« Last Edit: September 11, 2013, 09:00:47 PM by DutchNurse »

Randawl

  • Sr. Member
  • ****
  • Posts: 469
    • View Profile
Re: Questioning borrowers
« Reply #9 on: September 11, 2013, 11:46:01 PM »
I guess I'd just love to see this operation as an open book transparency wise. Makes me wonder what doesn't make the cut.

Declined loan data can be found here:

https://www.lendingclub.com/fileDownload.action?file=RejectStats.csv&type=gen

cfb

  • Full Member
  • ***
  • Posts: 132
    • View Profile
Re: Questioning borrowers
« Reply #10 on: September 12, 2013, 10:40:48 AM »
Also interesting is the borrower response, "I'm giving it to somebody else" that CLEARLY invalidates the loan, I wonder, did lending club catch that and throw the loan back to the investors before it got off the cliff.

They didn't.  It was a very clean loan, I bought it because there isn't time to ask questions, and when it defaulted I went back and looked and the question had been posted and answered after I bought it.

Here are the q/a's:

Q: If using your loan for multiple purposes, what are the purposes and how are you allocating the money across them?
A: (03/19/2012-15:59) - Primarily for higher interest rate credit card consolidation. I will also pay in full my car insurance bill that is coming due and will then loan a portion of the money to my significant other of 12 years so she can pay off the last 11 months worth of high interest rate truck loan for her son as he is going back to school. She will then pay me 200.00 a month back until paid I'm paid in full which will subsidise my loan payment back to you for a couple years.

Q: What is your intended use for the loan proceeds?
A: (03/19/2012-19:46) - to consolidate higher interest rate credit cards and other misc. debt for a fixed longer monthly payment plan that will be less of a monthly financial burden than current payments. Once this is done I will solicite lower interest rate cards and close my higher rate ones. In the longer term I will pay this loan off early.

So this actually was a sublet loan, a car loan, an education loan, and a card consolidation loan rolled into one, with the intent to pay it off early.  Yuck.  Squeaky clean looking note, paid 12 months, then bankruptcy counsel and it was set default.

PennySaved

  • Full Member
  • ***
  • Posts: 139
    • View Profile
Re: Questioning borrowers
« Reply #11 on: September 12, 2013, 01:09:31 PM »
Borrowing money to pay car insurance bill is another red flag.  If someone is borrowing money to cover basic needs like food, rent, insurance, utilitites,  that is not a good sign. 

Like you, when I go back and review the original listing for my lates and defaults, I sometimes see information that was not there in the QAs when I bought the note.   I also see conditions for which I have since adjusted my loan picking criteria this spring and I can say aha, I would not have picked that loan using my new criteria. 

The changed in criteria are based on some tips I picked up from reading the posts on this forum.  This spring, I no longer picked loans that had any inquiries in last 6 months.  I also raised the minimum income required to $5000 per month.  Also, the LC loan payment cannot be more than 10% of the borrower's monthly income.  I am not a sophisticated investor and do not use any software or analysis for picking my loans, just the website filters and my own criteria.  I read every loan description and fund each note at $25.  Even with my mistakes, I have made money since I started with Prosper in 2008 and Lending Club in 2009.  Maybe not as much as some folks, but enough to satisfy me to keep investing.